By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas must make sure it fully “executes” and does not treat the prospect of a credit rating upgrade by Moody’s as “a fait accompli”, a senior banker warned last night.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told Tribune Business that this nation cannot afford to become carried away over the first ‘positive’ outlook placed on its creditworthiness for more than 17 years as it still remains marooned in so-called ‘junk’ territory some four notches below returning to ‘investment grade’ status’.

And, noting that “there’s a tremendous amount of work to be done” for The Bahamas to reclaim ‘investment grade’ creditworthiness and achieve an objective unveiled by the Davis administration in the recent mid-year Budget, he warned that all this will have to be accomplished amid the global economic turmoil triggered by Donald Trump’s trade and tariff policies.

Mr Bowe told this newspaper that, “whether we admit or not, we’re betting on the US being successful in its trade war” and avoiding both an American and global economic recession given that The Bahamas is “so connected and tied to the hip” of the US economy for 90 percent of its visitors, most of its imports and trade and travel connections.

Speaking out after Moody’s yesterday elevated The Bahamas’ outlook from ‘stable’ to ‘positive’, while maintaining this nation’s credit rating at ‘B1’, he said: “We have about four notches we have to pass to get to investment grade because we are sitting at B1. We need to, ultimately, get to a rating of Baa3, which means we have to go through the entire Bs... 1, 2, 3.

“I don’t say that to dampen the spirits, but a ‘positive’ outlook means the potential for an upgrade in the next six to 12 months. We need to be looking at the root cause for an upgrade on their part and make sure we execute. It looks as if the global chaos, the tariffs and the fears of a world recession etc came about after they concluded on The Bahamas.”

Given this backdrop, Mr Bowe said The Bahamas “cannot take for granted” that it will enjoy a credit rating upgrade from Moody’s sometime in the next 12 months just based on the rating agency’s statement yesterday.

He added that this nation must understand and identify “the factors” Moody’s is looking for to justify improving The Bahamas’ creditworthiness. Based on his discussions with them, Mr Bowe said energy reform is critical to the rating agency’s assessment as this promises to lower electricity costs for both businesses and households and make the economy more competitive.

He added that Moody’s will also be looking for further fiscal consolidation and analysing “our ability to manage the public finances”. Mr Bowe said: “There’s more headroom on the deficit, although we’re probably not going to achieve the objective set for for 2024-2025. But that’s not fatal; that’s acceptable if we’re still moving in the right direction.”

While foreign currency debt was reducing, and the Government appears to have greater access to borrow in domestic Bahamian dollars, the Fidelity Bank (Bahamas) chief voiced concern that revenue growth was outpacing spending and adding to the country’s $11.7bn-plus national debt.

“What is most important in the statement is what are the factors they have highlighted as leading to a positive outlook, and we have to build up plans and strategies to execute on these initiatives,” Mr Bowe said. “I think they have given acknowledgement to several initiatives in the pipeline, but we should not take this as a fait accompli.

“It’s positive news but we have to execute all that they want to see executed.” Pointing out that a one-step or notch credit rating upgrade will be the start of a long journey for The Bahamas, Mr Bowe said: “To get back to investment grade level we need to move four notches, so there’s a tremendous amount of work to be done.

“And, unfortunately, going into the latter part of the year, there are tariffs, trade wars and global uncertainty on the economic front. We have already heard caution by policymakers, saying we are waiting and seeing, but if we had got the National Development Plan further ahead there would be less wait and see and more action.

“We are now actually, whether we admit it or not, betting on the US being successful in its trade war because we are so connected and tied to the hip of the US economy. There’s optimism in the short-term by Moody’s, but a threat to that from global economic events and now we’re waiting with bated breath for hurricane season now in less than two months,” Mr Bowe added.

“It’s positive news, but indicates we have to execute on what it [Moody’s outlook] means to bring a rating upgrade and, from there, continuing doing that to get us into the investment grade bucket.” Moody’s yesterday voiced concern at the present level of debt rollover risk facing the Government.

“The improvement in The Bahamas’ fiscal position, if sustained, will lower gross financing needs and ease liquidity risk. As the Government’s net fiscal financing needs decline, the Government will gain greater financing flexibility to refinance maturity debt,” the rating agency said.

“Gross financing needs in The Bahamas are very high, estimated at 20 percent of GDP in fiscal year 2024-2025, and will remain elevated even as the Government’s fiscal position improves. The Government needs to roll over approximately one-third of domestic debt on an annual basis. This includes 8 percent of GDP in Treasury Bills and 2 percent of GDP in Central Bank advances.

“Despite the large amount of domestic amortisations, we expect domestic investors to roll over maturing debt. The banking system, which is the primary source of domestic financing, maintains ample liquidity and has demonstrated a willingness to refinance maturing debt at relatively low borrowing costs. The average interest on domestic bonds has remained relatively stable at 4.6 percent over the past four years.”

Moody’s added: “The Government is actively working to develop the domestic market to improve its ability to issue longer-term bonds and enhance the capacity of the market to finance the Government. If successful, government efforts to improve the functioning of the domestic financial market could lead to gradual shift toward longer-term domestic financing and improve the overall maturity profile of the domestic debt stock.

“The Government also faces annual external amortisations of around 3 percent of GDP until 2030, mainly due to commercial creditors. We expect the Government to rely mainly on concessional external borrowing from lenders like the IDB, Corporacion Andina de Fomento and the Caribbean Development Bank to meet its external financing needs.

“We also expect the Government to access international bond markets, mainly for refinancing external amortisations or to conduct liability management operations. These operations may include buyback of near-term maturities through the issuance of longer-term debt or loans, helping to smooth the debt repayment profile and reduce rollover risk.”

And, looking to the future, Moody’s said: “The Bahamas’ rating could be upgraded if the Government continues to demonstrate a track record of fiscal consolidation, leading to a sustained reduction in government debt and improvement in debt affordability.

“Efforts to improve the maturity profile of government debt, through measures such as conducting buybacks and refinancing maturing debt with longer-term debt, would demonstrate the Government’s capacity to tap diverse external financing sources and would support the credit profile.

“Additionally, development of the domestic bond market, which allows issuance of longer-dated domestic debt without jeopardising the expected improvement in debt affordability, would also support an upgrade.”

As for any negatives, Moody’s said: “The positive outlook signals that the rating is unlikely to be downgraded in the near term. The outlook could return to stable if The Bahamas experiences setbacks in the effectiveness of its fiscal consolidation, resulting in a lasting deterioration of the primary balance and an upward trend in government debt.

“Factors such as lower-than-expected revenue collection, increased spending or failure to implement planned tax reforms could weaken fiscal strength and increase gross financing needs. Additionally, heightened vulnerability to external shocks, particularly from climate-related events, and reliance on commercial external financing with higher borrowing costs could exacerbate government liquidity risks.”